Most folks are aware that they’re required to start withdrawing money from their retirement accounts (Required Minimum Distributions or RMDs) at some point. Others even know that the magic age for this is 70 and ½. But very few people have appropriately factored this into their retirement income plan.
The Bass Lines:
What Are RMDs?
- [00:37] "] – When you invest in a tax-deferred account, you make a contract with Uncle Sam. In effect, he becomes your business partner. That contract says you won’t be taxed on what you’re putting into that account at the time. Instead, you’ll be taxed on it when you withdraw your money at a later date. He’s also going to tax any gains you have acquired. Furthermore, he’s not going to wait forever. At 70 and ½, he’s going to require you to start withdrawing, so he can take his cut.
Why Required Minimum Distributions?
- [3:42] – Simply put, Uncle Sam wants to get his. The government wants its tax revenue.
Can You Avoid Them?
- [3:46] – Not really. You could take your withdrawal and send it to a non-profit instead, but either way, you’re going to have to take that money out of your account.
What Should You Do?
- [6:38] – Set your retirement income plan up in a way that withdraws money you’re going to need anyway. When you make a budget, your first income should come from that account.
Can You Plan Ahead?
- [7:54] – Of course! Start while you’re young. Sixty is the new thirty. Start planning to incorporate your RMDs into your income plan while you’re in your fifties and sixties. That way, when the time comes, you’re prepared.
Buy Low; Sell High.
- [9:52] – How is this related? Plan to allocate some of your wealth in more aggressive accounts than others. If the market is high when you retire, withdraw from the aggressive account. Use that money to create your income. If the market is down, don’t be forced to sell low. Withdraw from the more conservative account.